CFTC probing oil price jump

Traders subpoenaed after record increase

September 24, 2008|By Bloomberg News

The Commodity Futures Trading Commission has subpoenaed traders as it investigates why a New York Mercantile Exchange oil contract had its biggest dollar gain ever on Monday, two people familiar with the matter said.

Subpoenas were sent to Nymex oil traders who were active Monday and Friday, said the people, who didn't identify the traders and asked not to be named because the process is private. Chicago-based CME Group Inc. Chief Executive Craig Donohue, whose exchange owns Nymex, briefed CFTC Acting Chairman Walter Lukken on the matter Monday, the people said.

Congress and the CFTC are watching oil markets for signs of manipulation after prices rose to a record $147.27 a barrel in July. Congress held hearings this summer on whether speculators are driving up prices, and the House passed legislation last week that would curb speculation in commodities such as oil.

"The fact that the CEO of the CME is involved with this is a good indication of the sensitivity of the situation," said Craig Pirrong, director of energy markets at the University of Houston's Global Energy Management Institute.

Calls to Donohue and Lukken were referred to representatives, who declined to comment. The CFTC said in a statement Monday that it would "scour" trading data to determine whether manipulation was involved.

Crude oil for October delivery climbed more than $25 a barrel Monday in Nymex trading before settling 16 percent higher, at $120.92, as the contract expired. At the same time, futures for November delivery rose 6.4 percent, to settle at $109.37 a barrel. On Tuesday, that contract fell $2.76, to $106.61.

Some analysts said Monday's price surge was the result of a "squeeze." In such a situation, a trader has gone short by selling contracts in the hope prices will decline. In the last days before the contract expires, the trader must buy back the same number of futures or deliver the underlying oil. When traders who are long and have contracts to sell to cover the short's position refuse to deliver, the short is forced to bid up the price to find a buyer or deliver the oil.

But Goldman Sachs analysts said Monday that the jump in price was due to a lack of physical oil supply.----------